Bronwen Maddox: The Budget represents decision time for government

Written by Bronwen Maddox on 16 October 2018 in Opinion

Opinion

The government faces tough choices on spending, and it’s time it involved the public in that discussion

Brexit complicates this autumn’s Budget by injecting uncertainty into every line of the government’s projections, from forecasts of growth to departmental spending. But among the most difficult decisions the chancellor will have to make is about how much money to give public services.

The government’s made one decision already – to give the NHS an extra £20.5bn a year in real terms by 2023-24. But that leaves less for other services unless the government agrees to borrow more.

This is a point of arithmetic more than party ideology. Delivering public services that meet public expectations while the population is ageing is one of the hardest tasks of modern government. National debt and deficits make it harder.

Performance Tracker 2018, a new edition of our report from the Institute for Government and the Chartered Institute of Public Finance and Accountancy, shows the effects of the pressure to cut government spending since 2008. The easy savings have long ago been made, it demonstrates, and many public services are showing the strain.

A new ‘concern rating’, derived from our analysis of nine public services, shows where that strain is greatest: prisons, adult social care and neighbourhood services. Schools have seen the smallest squeeze since 2010, but their budgets have started to be squeezed more tightly over the past couple of years and may be a target for future savings.

Government has shifted the costs of some services on to the public. Where individuals can pay directly for services, local authorities or central government has increasingly asked them to do so, from garden waste to legal aid.

Our report found that public sector efficiency has risen since 2010, driven by the public sector pay cap. However, major reforms have not materialised. Transformation projects continue, and sometimes do deliver real changes in how government deals with citizens. But large savings are not often the result.

Meanwhile, there are signs of retention problems in many services. Pay is not the only issue – often, not the main one. Increasing pay for the public sector may therefore not solve recruitment and retention issues.

This Budget will have to grapple with these difficult trade-offs. So will the Spending Review due next year – although as it is likely to be simply for one year, given the uncertainties of Brexit, the chancellor will be spared from spelling out the even more painful implications of the years beyond.

But it is clear that any government needs to find a way to communicate these trade-offs with the public and to discuss them in some way. Elections are not a nuanced enough way to do this. In local government, spending on social care is crowding out the spending on bin collection and libraries that many people, when asked, think their council tax is supporting. (There is a separate debate about whether social care should be funded by local authorities at all). Nationally, health spending is crowding out other services – and the burden will only get worse.

According to the Office for Budget Responsibility’s latest long term projection, if no changes to policy were made, health spending would rise from 7.6% of GDP in 2022-23 to 13.8% in 2067-68. The projection shows the primary budget deficit (the difference between revenues other than interest and spending) moving from 0.3% of GDP in 2022-23 to 8.6% over that period – a deterioration worth £176.5bn at today’s terms.

Its projections make clear that present standards of services – never mind any improvements – could be maintained only with considerable rises in taxes or efficiencies on a scale not evidently available now. It shows too, that public finances can be kept sustainable only with big tax rises, big cuts, or both – something worth bearing in mind as both main parties refine their account of the years ahead.

Our report argues that these critical choices have not been communicated clearly to the public. Are people prepared to accept a reduction in services, with an increased reliance on volunteers and personal spending, in order to avoid tax increases? Are they prepared for taxes to go up (or, as pollsters often find, only taxes they think others will pay)?

Governments need to get better at describing these choices to the public – and asking people to have their say.